G.R. No. 172428 November 28, 2008
HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as Heirs of Deceased SPOUSES RAYMUNDO I. CRYSTAL and DESAMPARADOS C. CRYSTAL, petitioners, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.

FACTS

Spouses Raymundo and Desamparados Crystal obtained a loan for Cebu Contractors Consortium Co. (CCCC) from BPI-Butuan, secured by a chattel mortgage and a Continuing Suretyship. They also executed a promissory note for the loan. Later, CCCC renewed a loan from BPI-Cebu City, evidenced by a promissory note signed by the spouses personally and as managing partners of CCCC, stating they were jointly and severally liable. This loan was secured by real estate mortgages on the spouses’ own property. CCCC defaulted on the loans. BPI foreclosed on the chattel mortgage and sought to foreclose the real estate mortgages. The spouses filed an action for injunction, claiming the foreclosure was illegal because they were mere guarantors and BPI should exhaust CCCC’s properties first. They also alleged BPI improperly refused to release a foreign currency savings account. The trial court dismissed the complaint, ruling the spouses were solidarily liable and the foreclosure was valid. The Court of Appeals affirmed. The spouses’ heirs (petitioners) now argue before the Supreme Court that BPI’s refusal to accept a third-party (IBAA) payment offer extinguished the loan obligation and that the foreclosure was unjust.

ISSUE

1. Whether the spouses’ loan obligation was extinguished by BPI’s refusal to accept a third-party (IBAA) payment offer.
2. Whether the spouses are solidarily liable for the loan, making the foreclosure of their real estate mortgages valid.
3. Whether the spouses (petitioners) are entitled to moral damages.
4. Whether BPI, a corporation, is entitled to moral damages.

RULING

1. No, the obligation was not extinguished. Under Article 1236 of the Civil Code, a creditor is not bound to accept payment by a third person who has no interest in the obligation, unless stipulated. IBAA was not a party to the loan agreement, and the promissory note contained no stipulation allowing third-party payment. Contracts take effect only between the parties, their successors, heirs, and assigns.
2. Yes, the spouses are solidarily liable. The promissory note expressly stated the spouses promised to pay “jointly and severally,” which constitutes a solidary obligation. A solidary obligor can be held liable for the entire obligation. This undertaking partakes of a suretyship, making their liability direct, primary, and absolute alongside the principal debtor (CCCC). Therefore, BPI could validly foreclose on the mortgages securing the obligation.
3. No, the spouses (petitioners) are not entitled to moral damages. Moral damages require a wrongful act or omission causing the injury. BPI’s acts of demanding payment and foreclosing the mortgages were lawful exercises of its rights under the loan agreements and promissory note. No wrongful act was established.
4. No, BPI is not entitled to moral damages. A juridical person like a corporation is generally not entitled to moral damages as it cannot experience physical suffering, mental anguish, or similar injuries. The Court of Appeals’ reliance on a case suggesting moral damages could be awarded for debasement of a corporation’s good reputation was incorrect. The Supreme Court clarified that a corporation may recover moral damages only in specific contexts, such as in defamation or similar actions, which were not present here. The award of moral damages to BPI was deleted.